Calculation of Superannuable Profit
From 1st April 2004, under the new GMS contract,
GP’s superannuation contributions will be calculated on
actual NHS profits. This is a major change to the scheme,
which will affect both GMS and PMS GP’s.
Profit is total income less total expenses.
For the first time a practice’s expenses will now
have an impact on superannuation. It will be more important
for practices to ensure expenses are controlled.
For example, if you compare two practices,
which have the same number of partners and the same earnings,
under the old contract they would have paid similar superannuation
contributions. If one practice is more efficient in controlling
their expenses than the other, under the new GMS contract they
would pay different superannuation contributions as a result of
the different level of expenses.
GP’s will be required to complete and
sign a form detailing the calculation of their NHS profits. Likewise
with your tax return, if you are clients we will be able to complete
this form for you.
The profits to be used for the calculation
of superannuation are those assessed in the tax year 2004/05.
This will be based on the accounts with year-ends from 6th
April 2004 to 5th April 2005.If a practice does not have a March
year-end, then a pension overlap will be created. For example
a practice with a June 2004 year-end will have paid superannuation
under the old contract on 9 months of income.The pension overlap
will need to be deducted from your final years profits or if you
change your year end.
Step 1 - The starting point for the calculation is the individual
GP’s profits, which have been declared to the Inland Revenue.
This will be the GP’s share of taxable profits after
deduction of their personal expenses and capital allowances.
Some GP’s want to maximise their personal
expenses claim in order to reduce the amount of tax they pay.
By doing this not only will your expenses reduce your income
for tax they will also reduce your income for superannuation.
Depending on the level of superannuable profits compared
to previous superannuable remuneration, this may effect a GP’s
decision regarding the personal expenses they wish to claim.
Step 2 - Deduct Non- NHS income. This
will be non NHS income which is included in the taxable profits
figure in step 1 e.g. income from private medical reports. It
is advisable that you ensure non-NHS income can be clearly identified
from your records.
Step 3 - Add Non- NHS expenses. For
most GP’s non-NHS expenses will be calculated based on the
standard method. This method calculates the non-NHS expenses
based on the percentage of non-NHS income to total income. For
example if a GP’s non NHS income is 6% percent of their
total income, then 6% of total expenses (including personal expenses)
will be deemed to be non-NHS expenses.
For GP’s with non-NHS income exceeding
£25,000 you will need to split your expenses on an actual
basis. The expenses will need to be split between those
that are wholly attributable to NHS income and those that are
wholly attributable to non-NHS income. Expenses that cannot
be separated will be allocated based on the standard apportionment
method. Again you may need to amend your records so that non-NHS
expenses can be clearly identified.
Step 4 - Deduct interest that is paid on business
loans, This will be interest which is not included in the accounts,
but declared separately on your tax return.
Step 5 - Add any income, which is from NHS
bodies, which has not been included in the accounts and has not
had superannuation paid on it.
Changes to how superannuation is paid
Under the old contract superannuation was calculated and deducted
before you were paid your income. As superannuation will
be based on profits the way that your contributions are paid has
Currently the PCO are making deductions for
superannuation. It must be stressed that this is only a
payment on account based on an estimate of your profits. Once
your actual profits have been calculated you may have a balance
of superannuation to pay.
You should also be aware that the balance
would be 20% or more if any GP’s were paying added years.
The 20% is made up of the GP’s contribution of 6%
and the employer’s contribution at 14%. The employer’s
contribution was previously paid by the PCO. This income has now
been included in the global sum and MPIG correction factor and
therefore practices are now responsible for paying the employer’s
Practices need to ensure that provisions are
made for the balance of superannuation. It would be advisable
when you receive your achievement payment for the QOF than some
is put aside for superannuation.
If you would like to get an estimate of the
potential balance click here to download the superannuation calculation
A single handed GP with a year end of the
30th September 2004 has net profits of £131,835 this includes
private income of £14,835. An estimate of the potential
balance can be calculated as follows:-
Net Profit per accounts131,835
Less: Non NHS income(14,835)
Estimate of superannuable profits117,000
GP’s Contribution at 6% 7,020
Employers at 14%16,380
Total superannuation due for 2004/0523,400
Less: Payments on account
GP’s at 6% (monthly £525 x 12)(6,300)
Er’s at 14% (monthly £1225 x 12)(14,700)
Balance due 2,400